While momentum stocks can be unbeatable when they’re on a roll, they can also quickly shift course and unwind recent gains.

But I don’t see that happening any time soon for one widely-owned momentum stock. Shares of leading video game maker Electronic Arts, Inc. (Nasdaq: EA) have surged more than 500% in the past three years, yet a set of catalysts should take shares yet higher in coming quarters.

Don’t assume that strong stock price gains translate into an overvalued stock. EA’s profits have quickly risen in tandem with the share price, and the stock is actually more than 20% undervalued relative to peers, with a price-to-earnings ratio of 27 versus the industry average of 34.

Look for that profit momentum to continue. EA is garnering a great deal of buzz for a November 2015 launch of a new Star Wars game, which will be released a month before the next instalment of the popular movie franchise. Management projects that the game will sell nine-to-10 million units in fiscal (March) 2016.

#-ad_banner-#UBS analyst Eric Sheridan is even more optimistic. He sees unit sales of 12-to-14 million based on consumer surveys and an enthusiastic response to the new Star Wars game at the recent Electronic Entertainment Expo, the video game industry’s annual convention.

This imminent growth catalyst should help EA generate record revenue and earnings of $4.6 billion and $3.01 per share, respectively, in fiscal 2016, Sheridan estimates. A 10-year licensing agreement with The Walt Disney Co. (NYSE: DIS) for the exclusive use of the Star Wars brand bodes well for the long-term profitability of EA’s Star Wars franchise.

Indeed, sales estimates suggest that the Star Wars gaming title will be a blockbuster addition to EA’s already extensive lineup, which includes the long-running Battlefield series, as well as the highly profitable sports franchises Madden NFL, NHL, NBA Live and FIFA. With its sports-related offerings, EA has captured nearly 50% of the sports video game market.

EA should also get a strong boost from the latest release of its long-running car racing franchise, Need for Speed, which is also due out in November. Because of relatively poor sales of recent versions, EA opted against an update last year, choosing instead to take extra time to rejuvenate the franchise.

Based on initial reviews, the new Need for Speed could vault EA back to prominence in the car racing genre. Although it may be unrealistic to expect the franchise to sell in excess of 10 million units (as it often did during its heyday a decade ago), unit sales should far surpass the most recent figure of around four million.

At present, most of EA’s sales are from games made for traditional platforms such as consoles and PCs. However, the sales mix is shifting significantly, as EA adroitly adapts to rising demand for mobile games that can be played on smartphones and tablets.

The firm already offers many games for download to mobile devices including Need for Speed, all of its popular sports franchises and a variety of puzzle games. For the fourth quarter of fiscal 2015, EA reported about 165 million active mobile users per month, which is a 27% increase from 2014’s full-year average of 130 million. In Q4, mobile games accounted for nearly 17% of adjusted revenue, compared with about 13% in the year-ago quarter.

While the rise of mobile gaming is still in the earlier stages, a broader move to higher-margin digital formats is well underway in the video game industry. (Digital games are more profitable in large part because they eliminate the need for middlemen, namely retailers.) EA is a leader of this trend, too. Digital sales from all sources, including downloads to consoles and PCs, accounted for about half of revenue in fiscal 2015 and peaked at just over two-thirds of sales in the fiscal fourth quarter ended March.

As EA continues transitioning to digital, its industry-leading margins should further expand. Morningstar’s Neil Macker projects a 150 basis point gain in operating margins, to 22.6%, by fiscal 2020. His outlook supports consensus estimates for a 13% rate of earnings growth over the coming five years.

Risks To Consider: Like pharmaceutical companies, EA must maintain a robust new-product pipeline. The failure to do so could lead to over-reliance on one or several game franchises.

Action To Take –> EA’s stock is through the roof, but still has plenty of momentum. Projected earnings growth implies roughly 80% upside through mid-2020. Just as important, EA isn’t apt to fizzle out eventually like a lot of momentum stocks. Shareholders own part of a well-run company with entrenched franchises, ample liquidity and no long-term debt.

In May, the board authorized a two-year, $1-billion share buyback program. With more than $3 billion in cash on the balance sheet and free cash flow approaching an all-time high of nearly $1 billion annually, EA should be capable of paying solid, reliable dividends at some point, too.

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